I've ridden the entrepreneurial roller coaster -- as I've been a serial technology entrepreneur for the last 17 years. Entrepreneurship is a roller coaster ride, fast, wild, filled with highs and troughs. I wouldn’t trade it in for the world. During that time I’ve learned a lot and continue to learn about building great businesses, leadership and creating successful company culture. For me it all begins with the customer, they are at the center of everything we do as a company. I am equally passionate about building high performance teams that are centered on delighting customers & winning markets. I believe strongly in identifying early adoption customers, who are leaders in the industry we want to serve, that want to be in the front seat driving innovation together as “design partners”. I’ve been fortunate to have had many successful exits in my career, and never had to close down a company. My latest venture is AppFirst, where I’m CEO and co-founder. When I’m not in entrepreneur mode, I am managing my fantasy baseball team or cheering on my daughters as they strive to be the best they can be in the arts & sports. All in all being an entrepreneur is a calling, not a job, and I feel fortunate to apply myself to areas where I am passionate where I can always learn new things from customers, partners, investors and members of our team.

The ABCs Of VC Funding And Building Your Board

Foursquare gets a shoutout in Fortune magazine piece highlighting the boards of different companies. This was a fun shoot to do up in Times Square. (Aug 2011, pg 184) (Photo credit: dpstyles™)

Every entrepreneur wants to have an amazing board of directors for their start-up but like it or not, your company’s board will be created off your earliest investors. Outside funding can be either a necessary evil or enable your company to take flight — which one depends on timing, control and synergy. When shopping for and accepting Venture Capital (VC) funding, you want a partner with the knowledge and contacts of an industry expert with the flexibility to pivot. The considerations of when and if to take outside funding and building your Board of Directors can be a real minefield. I hope my experiences help you navigate.

The earlier you accept funding, the more expensive it will be in terms of what you may need to surrender in equity and possibly in terms of company decision making. [Tweet this]

The moment you bring in institutional funding, the power negotiations start. Often before even an initial seed fund, the funding institution will negotiate for a board of director spot, or at least to observe the board in action. You may think that you just want their money, but it’s not going to happen – the firm will have governance responsibility and a certain amount of power on your board. If you take money too early and/or work with the wrong people, you can have a really dysfunctional board. However if you time your funding correctly and work with the right people, investors can play a key role in guiding your company to success.

So, when to start? The earlier you accept funding, the more expensive it will be in terms of surrendered equity and company decision making. This makes sense – after all, the newer the start-up, the bigger the investment risk. But I’ve seen early investors govern so much power over a start-up that the company couldn’t hire someone above a certain salary level or sign a lease on office space without approval. Unless you have the financial fortitude to be self-funded and stay that way, eventually most start-ups shop for investors. In my experience the longer you can go as a starving entrepreneur with a lean team to build out your product, the better. Why? Because if you can stay lean long enough, then you’ll have in place some of the critical things I’ve discussed in my earlier blogs – focusing on the right stuff, developing products to fit market need, building your own culture, assembling the right team, etc. With these fundamentals in place, you’re in a far better position to have a positive relationship with an eventual investor.

So the key becomes: How to get to business viability as soon as possible while taking the least amount VC dollars and not giving up unreasonable control. [Tweet this]

Or is there a way to avoid taking outside funding altogether? There are a few alternatives. The economy is still painful for many people and some of them have been through so much they’d rather take the risk and work for little or no money rather than depend on an outsider for anything. It’s called ‘boot-strapping’ and it’s more common today than it was five or 10 years ago. On a global nature, it’s massive outsourcing of a company. The entrepreneur has an idea of what they want, but no ability to do it themselves, so they go somewhere offshore and build a team and build out their product without spending a single dollar. I know a New York-area entrepreneur who did this – he had friends and family in India to make it happen and they were willing to let him use their hardware, data center and head count for a certain period of time for a minority stake in the company.

I know of a Silicon Valley entrepreneur who went to Eastern Europe and pulled off a similar scenario. However, with no local friends or family to trust and communicate with, he ended up spending over 50% of every year in that part of the world in order to make it work. Forbes contributorElena Bajic does a nice job detailing the good, the bad and the ugly of her bootstrapping experiences here.

I know of another entrepreneur who has been building his company for the last six or eight years without raising any institutional funds. Instead he has purely raised funds from private individuals, angel investors, and still owns 40% of his company. But he’s been at it for so long and has brought in about $2.5 million – which spread over eight years isn’t much and I’d guess that he’s missed a lot of market opportunity. Without a centralized, institutional investor pushing for discipline and a timely ROI, the company is languishing. His angel investors may push, but they are a splintered group with different ideas of discipline.

I don’t want to paint a picture that VCs and investors are the bad guys. In fact, far from it. But make some wrong choices and you will be jumping through hoops you’re not too excited about. However working with the right venture capital people can bring a synergy and balance to your board and deliver value to the table that is beyond the money.

VC Expertise at Your Business Table The biggest strength of any board and investors is ensuring that you have people actively working on behalf of the company between board meetings. You have to pick the right people! Not just the right VC firm, but the right person from that company to sit on your board. You should consider: Do they understand your industry? Do they have operational experience in your area? What value-add do they bring? Are they invested in target customers that can help with your relationships? Can they put you in contact with the right channel partners to help you get into the markets as you build the business? Is the culture of the firm a good cultural fit for what you’re doing and how you work? How much control do they require and does that match your management style?

As you start looking for investors VC’s will be interviewing you — but which VCs pass your test? They should bring value to your process and have a history of company business interaction for success. Your board meetings should be more than just a discussion of process governance and check points — you want a working meeting with all hands are on deck to help the company proceed, and with everyone working on between-meeting homework assignments to drive progress.

So just as you work to find complementary skills and personalities in hiring your team members, you’ll want a good balance of complimentary skills and assets among your VCs and board members. Avoiding overlap helps you achieve combined differences that round out value on the board.

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